PAYING OFF DEBT AFFORDABLY
The idea of debt is scary to most. The idea of accruing interest, constantly having to meet payment deadlines, and the nightmare that results in the event of default or complete failure to make payments scares a significant amount of people away from accessing credit.
The reality is that accessing credit facilities through Microfinance institutions can serve as an avenue for you to increase your ability to supplement your income, improve your standards of living, and/or handle emergencies that may have otherwise been impossible to finance.
With that said, below are a few pointers on how to take on feasibly payable debt to make financial institutions work for you and not the other way around:
- Choose A Plan That Works For You:
With many microfinance institutions offering significantly high maximum loan amounts, it may be tempting to apply for loans that are unaffordable given your current financial status. It’s important to do the necessary financial calculations prior to committing yourself to any monthly payments that may be a strain on you. One rule of thumb is to always ensure that your loan payment should at no point exceed 25% of your total monthly disposable income. Follow that rule.
2. Use the Loan for the Reason it was taken:
Quite often, borrowers end up taking loans for one particular use and end up spending the money on a completely different purpose. The value of a loan/credit facility greatly diminishes if the loan is not used for the intended purpose; it is precisely in situations like this where taking loans and the resulting loan repayments can prove to be a burden instead of an opportunity. Be careful to avoid this.
3. Break down your Payments Fully:
Case in Point: Jane has been approved for a school fees loan of 32,000/= for her daughter who is just about to join Form Four at Kericho Girls Secondary School. Considering a 4% interest rate payable over a three month period, a monthly loan repayment of 11,950/- will be due every month. In order for Jane to avoid having to deal with the burden of a monthly payment of 11,950/-, it would be highly advisable for Jane to breakdown this monthly payment into weekly payments of 2,990/- each. A lower weekly payment will ensure she is constantly on track to meet her monthly payments with minimum pressure or stress. All in all, the smaller the payment the better it is for everyone. Strive to get your payments down to as low as possible.
4. Plan Accordingly:
All positive effects of a credit facility go right out the window when there’s no plan involved. Make a plan. A plan includes a budget, timelines of payment and an outline of a clear avenue from where the finances to meet your monthly payments are coming from. I would strongly advise not to sign on the dotted line until you have a plan outlined and ready to be executed.
HAPPY BORROWING!